I'm surprised there isn't a review yet for the DAC1 since it was a popular purchase choice just a couple of years ago. This is a great little 24/192 unit that provides an excellent step up from nearly all CD players that I've heard and certainly from integrated decoders in sound cards and the like - this is in another league.
 
Impressions are obviously very personal and subjective so you should know up front that my review system is: Squeezebox (FLAC) -> DAC1 -> HD650s (w/APS V3 recable) where the DAC1's integrated headphone amplifier is being used to drive the headphones (more on that later).
 
Audio Quality
The DAC1 is studio grade equipment so I was expecting good things and I certainly haven't been disappointed. Synergy with the HD650 is excellent and is strongly hinted at with many of the product photos on the website showing a pair of them draped over the DAC1. Specifically, the DAC1 is quite an analytical unit and goes some way towards lifting the 650 'veil', as much as I hate to use the term. The more I listen to this combination, the more I become convinced that there really is no such thing in a decent system - here the slightly aggressive character of the DAC1 coupled with the fullness of the Sennheiser house sound is a lovely combination, like being in the sweet spot between two opposing forces.
 
Detail retrieval is another strong point of this unit and guitars in particular sound tight with fantastic timbre and resonance. I find this contributes to a very small amount of graininess in the sound, particularly with male voices but it really is minor and I was barely aware until I started listening critically for this review. Transient response is fast and punchy which sits well in my system but could sound somewhat lean when paired with headphones like the K701.
 
The built in headphone amplifiers are a real treat. I used to have a Graham Slee Solo that ran off the DAC1 outputs and these amps put it to shame - the Solo sounded murky, bloated and lacking in speed by comparison. As I write this, I'm in the process of building a balanced amplifier but I expect the differences to be fairly minor between that and the DAC1. For reference, it drives the 650s to high volume without needing to go past halfway on the volume dial.
 
I haven't mentioned soundstage at all since I find that DAC units and amplifiers have a negligible effect on this (past a certain point, at least). Suffice to say that this DAC does not under-perform in this area in my system and I'm sure it would scale equally well with headphones that naturally have a wide soundstage.
 
Quality / Design
Putting audio aside for a second, we must remember that the aesthetic and design side of any product is also an important purchasing factor and it's here that I have a couple of complaints with the DAC1. First of all the power LED is an ultrabright blue model that, while inconspicuous in the day, is a real pain at night; I can't sleep with it turned on. To make matters worse, the DAC1 has no power switch so my only recourse is to pull the plug or, as I later discovered, place the red side of a pair of red/blue 3D glasses over the LED to filter out the blue spectrum! In fairness, the DAC1 is a studio unit so sleeping in the same room probably wasn't a factor in the design specs.
 
Second, this may be an isolated issue with my unit but I found the volume pot became crackly just outside of the warranty period. It only gets moved within a small range which may contribute to the problem but for studio equipment I expect better so I've docked one quality star for this.
 
The casing is extremely well made with no flex in any of the panels and a solid front. There's no play in any of the jacks or dials. I wouldn't be surprised if it could survive a fair drop...not that I ever plan to subject it to such an indecency.
 
Value
I bought my unit in 2007 from Thomann.de for around £900GBP - I'm not sure how this price compares to the US rate for you folks on the other side of the Atlantic but I feel it's a little above the sweet spot. There's no denying that this is one of the best sources I've heard so if you could pick one up for around £750 or less then you'd be getting a steal.
 
Also, remember it has two capable amplifers built in which helps the value proposition somewhat.
 
Overall
The DAC1 is the best upgrade my system has had. I firmly believe in 'source first' and I challenge anyone to listen to the DAC1 compared to a lacklustre CDP or a computer sound card and say otherwise. Paired with a dark sounding set of headphones it'll add that little bit of sparkle in the upper mids and highs that brings it all together.

There's plenty of debate around here as to what makes a headphone "high end". Putting price aside for a moment, I have no doubt that the HD650 marks the beginning of the high-end range. I've auditioned many headphones over the past few years and while many sound different only the electrostats such as the HE60 truly sound superior in every way to the 650s.
 
In terms of sound the HD650 is what I would call a "natural" headphone. Very rarely do I get the feeling that any part of the spectrum is being over-emphasised and the result is an intimate presentation with good (if not exceptional) soundstage - perfect for live performances. Some would criticise the 650s for their rolled-off treble and I believe this is valid but mainly when the headphones are poorly amplified or paired with a poor DAC unit; I would certainly avoid running these directly from a computer's sound card, for example. My pair are used with a DAC1 which does a good job of brightening the 650s' sound signature without making the treble sound sterile.
 
The low-end and midrange of these cans is what stands out for me. Bass is almost perfect with good extension and decent impact. Though dark-sounding I never get the impression that the bass is being emphasised to the detriment of other frequencies. I also find that bass quality improves dramatically with higher volumes, this is likely because I listen at quite low volume most of the time and the extra juice is just what these cans need to shine. Moving on to midrange, these cans are excellent for female vocals as well as string / brass instruments with the original tonality being replicated solidly.
 
I paid almost exactly £200GBP for my pair in 2007 and I find that to be excellent value for money. Build quality is sturdy and the sound that you get for the price is ridiculously good - others have spoken highly of the ability of these cans to scale with the rest of your system and I can only echo this. My one gripe (the reason I docked a star for design) is that the paint tends to flake off slightly around the midpoint of the headband over time; continual flexing of this point as you stretch the headphones over your head contributes to the wear.